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Real estate transfer tax for spouses GbR

September 15, 2011 | 75,00 EUR | answered by Oliver Burchardt

Dear expert,

Below is the situation to be assessed and the question:

Factual background:

The wife (EF) is currently the sole owner of a property with a house. EF and her husband (EM) want to jointly renovate and expand the house as a family home. In this context, the establishment of a civil law partnership (GbR) involving both spouses is planned. This is primarily intended to allow the respective ownership shares to be allocated in a straightforward manner in relation to the respective financing shares of the spouses allocated to the renovation measures in the future, with these measures being financed mainly by EM.

The current value of the property is X and is fully financed by a loan. The property and building are to be transferred to EM for half of the obligations from the loans, and contributed to the GbR. Therefore, both spouses will initially be each involved in the GbR by 1/2. EM will then finance renovation measures worth approximately 2X from his own assets, so that the value of the house will amount to 3X, with 1/2 X belonging to EF and 2 1/2 X to EM. Due to an adjustment rule provided in the GbR contract, the ownership shares will be adjusted to this situation.

Although the amount of EF's share remains unchanged, her percentage share will decrease from 1/2 to 1/6 of the increased total value through the investment.

Since the total value of the investment measures cannot be accurately determined in advance, a flexible regulation in the partnership agreement seems sensible.

The notary's draft contract contains the following provisions:

A. Land register
Description of the property

B. Status
EF intends to contribute the property into a civil law partnership consisting of her as the seller and her EM as the buyer.

C. Establishment of the civil law partnership
EF and EM hereby establish a civil law partnership..., in which the mentioned partners are equally involved.

For the civil law partnership, §§ 705 ff BGB apply with the following provisions:
1. The contributions of all partners are made by acquiring the real estate described in section A and are credited to the partners in the above proportions.
2. The respective participation in the assets of the civil law partnership, in the liquidation proceeds and any ongoing profits, as well as the amount of participation relevant for the compensation of a partner upon withdrawal, corresponds to the partner's share in the financing and investment contributions made in each case by the end of a calendar year from today.

3. Disposals of partnership interests require the approval of both parties; management and representation are also jointly carried out by both.
4. In the event of a partner's death, their participation, unless previously terminated, will transfer with all assets and liabilities to the other partner, who will thus become the sole owner; ...

D. Contribution
EF (seller) hereby contributes the property described in section A into the civil law partnership in exchange for the granting of

Oliver Burchardt

Dear inquirer,

Thank you for your inquiry, which I am happy to answer as part of an initial consultation.

Please note that the tax assessment is based on the information provided. Adding, changing, or omitting information may significantly alter the assessment.

Your understanding that both the transfer of part of the ownership according to § 3 No. 4 GrEStG and the subsequent transfer of the property by both spouses to a joint property community according to § 5 Para. 1 GrEStG is tax-exempt is correct. However, it is important that the transfer to the spouse occurs first before being transferred to the joint property community. Otherwise, the transfer to the joint property community will only be 50% tax-exempt, as the wife is only involved to that extent in the joint property community.

The regulation of § 5 Para. 3 GrEStG is indeed designed as an anti-abuse rule. This view has been confirmed by the Federal Fiscal Court (BFH) in the judgment of 12.10.2006, II R 79/05. The application of § 5 Para. 3 GrEStG is only considered if the contribution aims to avoid real estate transfer tax.

However, I do not see such circumvention in your case. Due to the possibility of a tax-exempt transfer between spouses, you would be worse off in the end by contributing the property to a joint property community than if you had not done so, if § 5 Para. 3 GrEStG were to apply here. This outcome cannot be correct.

Although jurisprudence primarily deals with reductions in shares due to gifts, the BFH argues here with the tax exemption of such gifts according to § 3 No. 6 GrEStG. There does not appear to be a corresponding judgment of the BFH for the case described here, so there is a certain risk that the tax authorities may apply § 5 Para. 3 GrEStG. This legal opinion can probably be analogously applied to § 3 No. 4 GrEStG, so this risk should be rather low, and the opinion should be successfully enforced through objections or a lawsuit.

I hope my explanations have been helpful to you.

Sincerely,

Oliver Burchardt
Tax advisor